Events such as Hurricane Sandy are a terrible reminder of how devastating natural disasters can be for businesses and individuals. Sandy started as a late-season hurricane in the Caribbean before coming ashore in the United States with 80 mph winds. Stretching from the Carolinas to New England, it left 8.5 million homes and businesses without power across 15 states.
The financial cost of the storm is staggering. Disaster modeling company Eqecat estimates up to $20 billion in insured losses and as much as $50 billion in economic losses. Currently, Sandy ranks as the fourth-costliest U.S. catastrophe ever, according to the Insurance Information Institute, behind Hurricane Katrina in 2005, the September 11, 2001 attacks and Hurricane Andrew in 1992.
Here are the three key lessons that businesses need to learn from this devastating event:
Don't underestimate your risk of flood
Flooding is a serious threat to businesses in many areas of the country. According to FEMA, 90% of all natural disasters that occur nationwide involve flooding with the average commercial flood claim coming in at just over $85,000 (2006 - 2010). You don't need to be located in a coastal area to be at risk. Flash floods can be attributed to many factors, including deteriorating levees, dams, and ineffective hurricane barriers as well as construction and real estate development that can change an area's natural drainage.
Most commercial insurers base their flood insurance rates on the levels of flood risk designated by FEMA's Flood Insurance Rate Maps (FIRM). These maps are constantly being updated so it's important to know how your property is classified. If your area has been recently reclassified as a high hazard zone, your current coverage may be inadequate in the event of a claim.
Talk to your HUB broker who can negotiate with your current insurer or proactively source alternate solutions. While flood insurance is the best way to protect yourself from this devastating financial loss, HUB can also help you identify non-insurance ways to reduce your risk in the event of a flood.
You can't be too prepared
An updated emergency response and business continuity plan, when properly executed, can greatly reduce the damage to your property - and more importantly, keep your employees safe. Your plan should identify responsibilities and specific steps to take before, during and after a storm. Consistent communication to employees is a critical element of the planning process.
- Maintain a list of updated telephone numbers of employees, vendors and local authorities.
- Proactively contact your clients and key suppliers to inform them of your situation.
- Develop a back-up plan to receive supplies and secure critical information in the event of a supply chain disruption or power failure.
In the aftermath of a storm, a well-prepared employee team can enable you to get your business back on track faster. If you do not have a plan, get started by referring to HUB International's complimentary 5-Day Hurricane/Storm Preparedness Plan. This checklist provides step-by-step recommendations on how to prepare your employees and company. Your HUB Risk Services consultant can help you develop a customized plan that is tailored to your business.
It's a small world
Because businesses today are so interconnected, you need to be aware of not just the catastrophic risks you face in your own backyard, but also those risks that impact your critical suppliers. Whether or not you were in the direct path of Hurricane Sandy, your business could be affected if your suppliers or key customers are unable to operate as a result of the storm.
Business interruption losses due to Hurricane Sandy are expected to be large due to widespread power failures that resulted in partial or full production stoppages at many businesses. Business interruption claims comprised 20% of the overall insurance losses from Hurricane Katrina, according to PricewatershouseCoopers.
Talk to your HUB broker about business interruption insurance and extra expense insurance. This coverage can be added to an existing property insurance policy or package policy. It compensates you for lost income, based on your financial records, if your company has to vacate the premises due to disaster-related damage that is covered under your policy.
Contingent Business Interruption and Extra Expense coverage can also be added and compensates you for lost income, based on your financial records, if a critical supplier cannot provide you with products or services necessary to conduct your business due to a cause of loss that is covered under your policy.
Talk to your HUB advisor today to learn how you can transfer and/or reduce the risks facing your business.